The Commission’s White Paper on Damages Actions for Breach of the EC Antitrust Rules

Tim Reher

CMS Hasche Sigle

With the publication of the White Paper on Damages Actions for Breach of the EC Antitrust Rules¹ the process of establishing the European system for private competition law enforcement has taken a further step forward. In its Green Paper of 2005² the Commission identified obstacles to private enforcement resulting from applicable procedural law and set out a range of policy options intended to overcome the obstacles identified.³ At the Green Paper stage the Commission did not itself evaluate the options it established, but asked stakeholders for their comments. In the White Paper the Commission gives guidance on how it believes the obstacles to private enforcement of competition law should be addressed. The White Paper is accompanied by the substantial ‘Commission Staff Working Paper on EC Antitrust Damages Actions’⁴ and an Impact Assessment Report⁵ analysing some potential benefits and costs of various policy options.
Below it shall be considered whether and how the Commission has implemented the proposals and critique received in the public consultation and how it reacts to the partly diverging policy underlying the European Parliament resolution on damages actions for breach of competition rules.⁶ In line with the majority of the more than 150 submissions the Commission received in response to the White Paper,⁷ many of the proposals of the White Paper that align the Commission’s approach to private enforcement with the compensatory principle must be endorsed. A more critical approach, however, is appropriate with respect to the Commission’s intention to initiate a legislative process rather than rely on the procedural law of the member states to solve the existing obstacles to private enforcement.

Deterrence no longer main objective

In the White Paper the Commission abandons deterrence as a primary objective of private enforcement. This is an important evolution from the Green Paper and constitutes the main policy change undertaken by the Commission. By making this change, the Commission responds to the large number of very critical remarks it received in the public consultation on the Green Paper and in particular to the Resolution of the European Parliament.⁸ The Commission now acknowledges that the legitimate purpose of private damages actions is to ensure compensation for harm suffered and not to act as a surrogate regulatory enforcement mechanism. This change of policy has a particularly strong influence on the Commission’s stance on the calculation of damages, but also on the relation of private and public enforcement, which potentially clash in the context of leniency programmes.

Calculation of damages

In the White Paper the Commission dismisses the possibility of doubling damages in horizontal cartel cases, an option it had previously considered in the Green Paper. The reasoning behind the idea of double damages was to provide an additional incentive for claimants to bring damages actions and thereby to create a deterrent effect against competition law infringements. The dismissal of plans to introduce multiple damages for antitrust violations is a direct consequence of the European Parliament’s clear vote against double damages.
The Commission’s change of policy is much appreciated. The proposed introduction of multiple damages did not only raise general discomfort because the promotion of a US-style litigation culture is intensely feared in Europe, but it also conflicted with the public policy and the Ordre Public of some member states.⁹ Deterrence should be achieved through public enforcement and not through private actions with the inherent risk of commercialisation.
The Commission rightly clarifies in the White Paper that the main objective of cartel damages claims is to fully compensate the victims of an antitrust infringement. In order to facilitate the calculation of damages the Commission intends to publish a framework with pragmatic, non-binding quantification of damages in antitrust cases. It is important that the calculation of damages is left to the national laws. Guidance from the Commission may nevertheless prove to be very helpful in practice. Courts often hesitate to establish a workable approach for the calculation of damages. Therefore the Commission is right when it states that the calculation of damages is often a very cumbersome exercise that can become excessively difficult and practically impossible if the claimant is required to calculate the damages with reference to the exact amount of harm suffered.
Rather than publishing guidance in the abstract, the Commission should be strongly encouraged to include findings on the development of market prices and the amount of cartel related overcharge in its infringement decisions. The legal systems of some member states already provide for an estimation of the amount of damages, but the courts tend to be hesitant in estimating damages because they struggle to find reliable market information on which to base their estimation. Market information from an infringement decision could serve as a valuable basis for an estimation of the amount of damages and has already done so in the past. In the past the Commission had published comprehensive information about the impact of cartels in its fining decisions (eg, Vitamins¹⁰ or Citric Acid¹¹ decisions) and the national courts had been prepared to use the information as a starting point for the estimation of the quantum of damages in private damages actions. Unfortunately, the Commission has ceased to provide such information in any of its more recent fining decisions.

Interaction between leniency programmes and damages actions

The coordination of private and public enforcement of competition law is particularly difficult with regard to leniency programmes. Leniency applicants provide competition authorities with detailed information on cartels that have not yet been detected by the competition authorities. If claimants in private damages claims had access to the competition authority’s file they could use that information to substantiate their damages claim. This risk can discourage potential leniency applicants from cooperating with the competition authorities and may thus be detrimental to the success of leniency programmes.
The Commission was right to dismiss the idea of granting leniency applicants a rebate on any damages claim, an option that was considered in the Green Paper. A rebate would prejudice the victim’s right to full compensation lying at the very heart of private competition law enforcement and would stand in stark contrast to the newly established policy of focusing on compensation rather than deterrence.
Instead, the Commission now intends to safeguard the effectiveness of leniency programmes by securing the confidentiality of corporate statements submitted by leniency applicants, irrespective of whether the applications are successful. It is also considering limiting the liability for damages to claims by direct and indirect purchasers. The previously considered proposal to limit the liability of leniency applicants in private damages actions to their share of the cartel gains was dismissed in the White Paper.
As much as the abandonment of a rebate for leniency applicants in private damages actions is appreciated the other proposals provoke criticism. Limiting the number of potential claimants for damages is incompatible with the policy objective of full compensation. Immunity from fines is a legitimate bonus to be offered in exchange for information that leads to the detection of cartels. On the other hand there is no reasonable justification to protect leniency applications from civil liability for damage they have caused by anti-competitive behaviour.
The proposal to secure the confidentiality of submissions made by leniency applicants has to be dismissed for the same reason. While there are good reasons to grant a leniency applicant immunity from the punishment a fine imposes on cartelists, there is no valid reason to protect the applicant from liability for the damage he has caused to other civil parties. Securing confidentiality of the submissions made by leniency applicants also has to be rejected as a matter of policy. Community law should not interfere with the procedural law of the member states. The procedural law of some member states provides for a shift of the burden of proof if the defendant fails to produce certain documents in its possession.
Rather than considering proposals that aim to shield the leniency applicant from civil liability altogether, the Commission is to be encouraged to resume a proposal from the Green Paper to remove the joint liability of leniency applicants. According to this proposal, the applicant’s liability for damages would be limited to its share in the cartelised market.

Access to evidence

The difficulty the claimant faces almost inevitably in antitrust actions for damages in obtaining access to evidence was identified already in the Green Paper. The Commission suggested three approaches to overcome the lack of evidence ranging from the introduction of disclosure obligations inter partes, by means of special rights of access to the competition authority’s file to an alleviation of the burden of proof. Many commentators having replied to the Commission in the public consultation take the view that private enforcement of competition law will mainly take the form of follow-on actions. The most valuable sources of evidence for follow-on claims are the administrative infringement decision and the information contained in the Commission’s file. Claimants could use the information gathered by the Commission, inter alia, to calculate the quantum of damages.
In the past the Commission has been very restrictive in granting access to its files. The CFI¹² ruled in its Lombard Club decision that the Commission may not refuse access to its files on general terms. It is required to carry out a specific, individual examination of each of the documents requested in order to determine whether any exceptions apply to the general right of access to the files or whether partial access is possible. Following the Lombard Club decision the Commission remained very restrictive in allowing access to its files. Unfortunately, the Commission has not considered the right of access to its own files in the White Paper. It only touches upon this issue with regard to the interaction between leniency programmes and damages actions. In that context it demands that corporate statements submitted by a leniency applicant must be protected against disclosure in private actions for damages. It will be interesting to see if the Commission will relax its restrictive approach to access to its administrative files in its own damages claim against members of the escalator and elevator cartel.¹³ The Commission should write its decisions with the potential subsequent damages claims in mind and include more information about the market development as well as clear reference to the information and evidence. This would enable claimants to request specific documents from the Commission’s files and give practical effect to the inter partes disclosure so strongly requested in the White Paper.
The White Paper focuses on the introduction of a court-controlled disclosure regime inter partes. Provided that the claimant specifies sufficiently precise categories of evidence any court shall have the right to make a disclosure order if it is satisfied that the claimant would otherwise be unable to prove his case.
The proposed court-controlled disclosure system raises substantial concerns. Disclosure systems carry the inherent risk of leading to an uncontrollable amount of data brought into the proceedings which in turn will increase the litigation costs. As a consequence disclosure may hinder reasonable access to justice. The introduction of disclosure rules limited to damages actions in antitrust cases also raises serious policy concerns. It is undesirable to amend national procedural rules solely in the field of competition law. The procedural rules of most member states are well developed and fully functional without specific disclosure rules. For example, some national procedural rules provide for a shift of the burden of proof if the defendant fails to produce documents which it has in its possession. The choice of adequate procedural means should be left to the national laws.

The passing-on defence

The White Paper confirms the approach taken in the Green Paper that two distinct questions related to the passing-on defence must be kept apart. The victim of a competition law infringement will often be able to pass on the overcharge suffered. The question thus arises whether direct purchasers should be able to receive compensation in the amount of the overcharge, even if the loss is effectively born by the consumer. A second question is whether the indirect purchaser can rely on the passing-on defence to prove that the overcharge was passed on to him or her.
The Green Paper proposed four possible approaches to the passing-on defence. The first was to allow for the passing-on defence and grant standing to direct and indirect purchasers. The second and third proposals were to deny the infringer the right to invoke the passing-on defence. According to the third proposal, the infringer would have been liable for damages payable both to the direct and the indirect purchasers, while under the second proposal only direct purchasers were given standing. The fourth proposal was to provide for a two-step procedure in which the amount of the damages was to be calculated in the first step and would then have been distributed between all parties in the second step.
The decision of the White Paper to allow for the passing-on defence is to be approved of as it aligns private enforcement with the compensatory principle. The White Paper thus reacts to the Courage and Manfredi decisions where the Court of Justice explicitly provided for the principle of full compensation.¹⁴ According to the court, national law has to ensure that any injured person must have the right to compensation, thus ruling out the second proposal from the Green Paper. The White Paper further strengthens the position of the indirect purchaser by providing for a rebuttable presumption that the overcharge was passed on in its entirety. In practice this presumption will have far-reaching consequences as the defendant will find it difficult to rebut the presumption.
The Commission rightly accepts the passing-on defence but should consider additional safeguards to ensure that the principle of full compensation established in Courage and Manfredi is met. Direct purchasers can suffer damages resulting from a decrease of sales even if they succeed in passing on the overcharge.

Standing

In line with the recognition of the passing-on defence the Commission considers that indirect purchasers have standing for damages claims. The Commission recognises that indirect purchasers often suffer scattered relatively low-value damages which deters them from bringing individual actions for damages. It suggests the introduction of collective redress to encourage damages claims in these cases. The Commission provides for two alternative forms of collective redress: actions brought by qualified entities on behalf of identified or identifiable indirect purchasers, and opt-in collective actions by individuals who agree to combine their claims. According to the Commission these two types of action must complement one another.
Collective redress bears the inherent risk of an undesirable commercialisation of competition law. To avoid commercialisation, standing should be limited to non-profit organisations and a strict opt-in approach to damages claims should be adopted. Unfortunately, the ambiguity of the Commission’s language that refers to ‘identified’ or ‘identifiable’ victims leaves room for an undesirable opt-out approach. Such an opt-out approach brings a significant risk of abuse and should be avoided.

The next steps

The Commission does not explicitly state how it further plans to proceed from the White Paper, but it apparently sees legislative acts on the Community level as the next logical step. In its Staff Working Paper the Commission argues that when it comes to the choice of the appropriate instrument for further Community action, certain of the issues mentioned in the White Paper may require Community legislative action. In order to increase the effectiveness of the exercise of the right to antitrust damages and to create a basic framework for an effective antitrust damages regime in all member states, the Commission considers Community legislation – as opposed to soft-law approaches, such as guidelines or recommendations – to be the most appropriate way forward.
However, the Commission has not identified the legal basis on which it plans to base any such Community legislation. It claims that the Court of Justice has indirectly confirmed the Community’s competence to adopt legislative action in this field¹⁵ but does not specify the actual legal basis for such action. One possibility would be the use of article 83 EC, but it is highly questionable whether this article allocates a competence for introducing a damages claims regime to the European Community since this article focuses only on procedural aspects and the relationship between national and European competition law. Article 95 EC could possibly serve as an appropriate legal basis, but this would of course lead to the applicability of the co-decision procedure laid down in article 251 EC, meaning that no legislative action could be adopted without the European Parliament’s assent. It has become apparent from the European Parliament’s Resolution to the Green Paper that the Parliament’s policy differs significantly from that of the Commission with regard to some aspects of antitrust damages claims.
Apart from the serious doubts about the Community’s competence for adopting legislative acts, the practical need for binding community action to promote antitrust damages claims is doubtful. This is due to the complexity and the national roots of this field of law, which touches upon a great number of aspects related both to procedural and material law. So far, the Community legislator has been very careful not to interfere with the procedural laws of the member states. And there is good reason for it to remain so: the procedural laws vary greatly from each other, they are well established in the respective member states and largely influenced by the respective legal traditions. Moreover, procedural law aspects are often closely intertwined with material law provisions, the most important example being the rules on the burden of proof. Interference with these well-established and well-functioning procedural laws not only bears the risk of creating harmful effects because the judges are unfamiliar with the law,¹⁶ but more importantly, there is the obvious danger of creating inconsistencies in and fragmentations of the historically grown national law systems.
Against this background the Commission’s aim to harmonise or even unify the different national rules on antitrust damages claims might not be appropriate. Before entering into a lengthy and highly controversial phase of preparing community legislation – the success of which would be less than certain – the Commission should continue to evaluate the development in the different member states concerning antitrust damages claims and do more in order to support this process actively. Such an approach would be in line with the principle of creating as little harmonisation as necessary, but leaving as much diversity and competition between the member states as possible. The Commission has not convincingly explained why legislative action is necessary to create an effective antitrust damages regime in all member states. It seems to underestimate the current developments. In a number of member states, the law regarding private actions in antitrust cases is in flux. The German legislator, for example, has modified the Act against Restraints of Competition in order to facilitate antitrust damages claims. The courts have yet to render first judgements under the new system before the effectiveness of the legislative changes can be assessed.
In conclusion, the Commission should do more in order to help cartel victims to actually bring claims before national courts and successfully claim damages in follow-on situations. In practice, the main factor deterring cartel victims from doing so is the difficulty in proving the quantum of damages. The Commission should draft its decisions with possible follow-on claims in mind and should provide information on the development of market prices and the cartel-related overcharge on which an estimation of damages could be based. However, in its more recent fining decisions the Commission does not provide any such information. This is hardly comprehensible. It is even contradictory to a certain extent: on the one hand the Commission strongly advocates the need for an effective antitrust damages claims regime and even wants to take corresponding legislative action, but on the other hand the Commission does not help cartel victims to overcome the practical difficulties they are confronted with before court. Moving forward in this direction would create a much stronger and more prompt impetus for the effective enforcement of antitrust damages claims in the Member States than any legislative action.

Notes

1 COM(2008) 165 final.
2 COM(2005) 672 final.
3 See Reher and Sanchez, GCR European Antitrust Review, 2007, p. 40 on the initial debate of the Green Paper.
4 SEC(2008) 404.
5 SEC(2008) 405.
6 See Alfaro and Reher, GCR European Antitrust Review 2008, p. 46 on the debate of the European Parliament Resolution.
7 These can be found at http://ec.europa.eu/comm/competition/antitrust/actionsdamages/documents.html.
8 European Parliament Resolution of 25 April 2007 on the Green Paper on Damages actions for breach of the EC antitrust rules; 2006/2207 [INI].
9 BGH, Judgement of 4 June 1992 – IX ZR 149/91.
10 Commission decision 2003/2/EC of 21.11.2001, COMP/E-1/37.512 – Vitamins.
11 Commission decision 2002/742/EC of 05.12.2001, COMP/E-1/36.6004 – Citric acid.
12 Judgment of the Court of First Instance of 13 April 2005 (case T-2/03)
13 IP/08/998.
14 Judgments of the European Court of Justice of 20.09.2001, (case C-453/99). ECR 2006 I-6297 - Courage Ltd v Crehan. 13.07.2006 (case C-295/04) ECR 2006I - 6619 Manfredi.
15 Commission Staff Working Paper COM(2008) 165 final, footnote 164.
16 Compare Response from the European Justice Forum to DG COMP White Paper on Damages for Breach of Competition Law, para 15; available at http://ec.europa.eu/comm/competition/antitrust/actionsdamages/white_paper_comments.html.

An extract from The European Antitrust Review 2009